UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED MARCH 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-10813
-----------------------
PLM EQUIPMENT GROWTH FUND III
(Exact name of registrant as specified in its charter)
CALIFORNIA 68-0146197
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE MARKET, STEUART STREET TOWER
SUITE 800, SAN FRANCISCO, CA 94105-1301
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (415) 974-1399
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ______
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
(in thousands of dollars, except unit amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------------------------------
ASSETS
<S> <C> <C>
Equipment held for operating lease, at cost $ 109,400 $ 109,680
Less accumulated depreciation (83,056) (81,298)
------------------------------------
Net equipment 26,344 28,382
Cash and cash equivalents 2,701 3,429
Accounts receivable, net of allowance for doubtful
accounts of $1,460 in 1999 and $1,469 in 1998 2,047 1,328
Investments in unconsolidated special-purpose entities 92 2,160
Deferred charges, net of accumulated
amortization of $435 in 1999 and $403 in 1998 109 141
Prepaid expenses and other assets 73 72
------------------------------------
Total assets $ 31,366 $ 35,512
====================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 947 $ 1,369
Due to affiliates 220 168
Lessee deposits and reserves for repairs 1,343 1,142
Note payable 14,956 18,540
------------------------------------
Total liabilities 17,466 21,219
------------------------------------
Minority interests 2,196 2,211
Partners' capital:
Limited partners (9,871,073 depositary units as
of March 31, 1999 and December 31, 1998) 11,704 12,082
General Partner -- --
------------------------------------
Total partners' capital 11,704 12,082
------------------------------------
Total liabilities and partners' capital $ 31,366 $ 35,512
====================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
(in thousands of dollars, except weighted-average unit amounts)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1999 1998
---------------------------
REVENUES
<S> <C> <C>
Lease revenue $ 3,904 $ 4,767
Interest and other income 68 59
Net gain (loss) on disposition of equipment 13 (10)
---------------------------
Total revenues 3,985 4,816
---------------------------
EXPENSES
Depreciation and amortization 1,997 2,652
Repairs and maintenance 482 646
Equipment operating expenses 196 237
Insurance expense 80 113
Management fees to affiliate 218 266
Interest expense 316 529
General and administrative expenses to affiliates 133 164
Other general and administrative expenses 366 138
Provision for (recovery of) bad debts (9) 127
Minority interests (20) (63)
---------------------------
Total expenses 3,759 4,809
---------------------------
Equity in net income (loss) of unconsolidated
special-purpose entities 1,474 73
---------------------------
Net income $ 1,700 $ 80
===========================
PARTNERS' SHARE OF NET INCOME (LOSS)
Limited partners $ 1,596 $ (50)
General Partner 104 130
---------------------------
Total $ 1,700 $ 80
===========================
Net income (loss) per weighted-average depositary unit $ 0.16 $ (0.01)
===========================
Cash distribution $ 2,078 $ 2,597
===========================
Cash distribution per weighted-average
depositary unit $ 0.20 $ 0.25
===========================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD FROM DECEMBER 31, 1997 TO MARCH 31, 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
------------------------------------------------
<S> <C> <C> <C>
Partners' capital as of December 31, 1997 $ 19,559 $ -- $ 19,559
Net income 2,397 520 2,917
Cash distribution (9,874) (520) (10,394)
-------------------------------------------------
Partners' capital as of December 31, 1998 12,082 -- 12,082
Net income 1,596 104 1,700
Cash distribution (1,974) (104) (2,078)
-------------------------------------------------
Partners' capital as of March 31, 1999 $ 11,704 $ -- $ 11,704
=================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1999 1998
-----------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 1,700 $ 80
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,997 2,652
Net (gain) loss on disposition of equipment (13) 10
Equity in net (income) loss from unconsolidated special-purpose entities (1,474) (73)
Changes in operating assets and liabilities:
Accounts receivable, net (719) 581
Prepaid expenses and other assets (1) (7)
Accounts payable and accrued expenses (422) (619)
Due to affiliates 17 (291)
Lessee deposits and reserves for repairs 201 191
Minority interests (15) (80)
---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,271 2,444
---------------------------
INVESTING ACTIVITIES
Payments for capitalized improvements (2) (26)
(Additional investments in) distributions from unconsolidated special-purpose (5) 1,708
entities
Distributions from liquidation of unconsolidated special-purpose entities 3,547 --
Proceeds from disposition of equipment 88 254
Due to affiliate 35 --
---------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 3.663 1,936
---------------------------
FINANCING ACTIVITIES
Principal payments on note payable (3,584) --
Payment due to affiliate -- (1,792)
Cash distributions paid to limited partners (1,974) (2,467)
Cash distributions paid to General Partner (104) (130)
---------------------------
Net cash used in financing activities (5,662) (4,389)
---------------------------
Net decrease in cash and cash equivalents (728) (9)
Cash and cash equivalents at beginning of period 3,429 4,239
---------------------------
Cash and cash equivalents at end of period $ 2,701 $ 4,230
===========================
Supplemental information
Interest paid $ 316 $ 529
==========================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
1. OPINION OF MANAGEMENT
In the opinion of the management of PLM Financial Services, Inc. (FSI or
the General Partner), the accompanying unaudited financial statements
contain all adjustments necessary, consisting primarily of normal recurring
accruals, to present fairly the financial position of PLM Equipment Growth
Fund III (the Partnership) as of March 31, 1999 and December 31, 1998, the
statements of income for the three months ended March 31, 1999 and 1998,
the statements of changes in partners' capital for the period from December
31, 1997 to March 31, 1999, and the statements of cash flows for the three
months ended March 31, 1999 and 1998. Certain information and note
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted from the accompanying financial statements. For
further information, reference should be made to the financial statements
and notes thereto included in the Partnership's Annual Report on Form
10-K/A for the year ended December 31, 1998, on file at the Securities and
Exchange Commission.
2. SCHEDULE OF PARTNERSHIP PHASES
In accordance with the limited partnership agreement, the Partnership
entered its passive phase on January 1, 1997 and as a result, the
Partnership is not permitted to reinvest in equipment. On January 1, 2000,
the Partnership will enter the liquidation phase and commence an orderly
liquidation of the Partnership assets. The Partnership will terminate on
December 31, 2000, unless terminated earlier upon sale of all equipment or
by certain other events.
Beginning in the Partnership's eighth year of operations, which commenced
on January 1, 1997, the General Partner stopped reinvesting excess cash, if
any, which, less reasonable reserves, will be distributed to partners.
During the liquidation phase, the Partnership's assets will continue to be
recorded at the lower of carrying amount or fair value less cost to sell.
3. CASH DISTRIBUTIONS
Cash distributions are recorded when paid and may include amounts in excess
of net income. Operating cash distributions were $2.1 million and $2.6
million for the three months ended March 31, 1999 and 1998, respectively.
Cash distributions to limited partners in excess of net income are
considered to represent a return of capital. Cash distributions to limited
partners of $0.4 million and $2.5 million for the three months ended March
31, 1999 and 1998, respectively, were deemed to be a return of capital.
Cash distributions related to the results from the first quarter of 1999,
of $2.1 million, will be paid during the second quarter of 1999.
4. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES
The balance due to affiliates as of March 31, 1999 included $0.2 million
due to FSI and its affiliate for management fees, and $35,000 due to
affiliated unconsolidated special-purpose entities (USPEs). The balance due
to affiliates as of December 31, 1998 includes $0.2 million due to FSI and
its affiliates for management fees.
The Partnership's proportional share of USPE-affiliated management fees, of
$1,800 and $3,000, were payable as of March 31, 1999 and December 31, 1998,
respectively.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
4. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES (CONTINUED)
The Partnership's proportional share of the affiliated expenses incurred by
the unconsolidated special-purpose entities during 1999 and 1998 is listed
in the following table (in thousands of dollars):
For the Three Months
Ended March 31,
1999 1998
---------------------------------
Data processing and administrative
expenses $ 2 $ 10
Management fees -- 14
5. Equipment
The components of owned equipment were as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------------------------------------
<S> <C> <C>
Aircraft $ 52,028 $ 52,028
Railcars 33,953 33,999
Marine vessel 12,790 12,790
Marine containers 5,459 5,606
Trailers 5,170 5,257
------------------------------------
109,400 109,680
Less accumulated depreciation (83,056) (81,298)
-------------------------------------
Net equipment $ 26,344 $ 28,382
=====================================
</TABLE>
As of March 31, 1999, all equipment in the Partnership portfolio was either
on lease or operating in PLM-affiliated short-term trailer rental
facilities, except for 38 railcars, 21 marine containers, and an aircraft.
As of December 31, 1998, all equipment in the Partnership portfolio was
either on lease or operating in PLM-affiliated short-term rental
facilities, except for 69 railcars, 25 marine containers, and an aircraft.
The net book value of the equipment off lease was $1.9 million and $2.4
million as of March 31, 1999 and December 31, 1998, respectively.
Capital improvements to the Partnership's equipment of $2,000 and $26,000
were made during the three months ended March 31, 1999 and March 31, 1998,
respectively.
During the three months ended March 31, 1999, the Partnership sold or
disposed of marine containers, trailers, and railcars, with an aggregate
net book value of $0.1 million, for aggregate proceeds of $0.1 million.
During the three months ended March 31, 1998, the Partnership sold or
disposed of marine containers, trailers, and a railcar, with an aggregate
net book value of $0.3 million, for aggregate proceeds of $0.3 million.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
6. INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES
The net investment in USPEs included the following jointly-owned equipment
(and related assets and liabilities) (in thousands of dollars):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------------------------------
<S> <C> <C>
25% interest in a trust that owned four commercial aircraft $ 92 $ 106
17% interest in two trusts that owned three commercial aircraft, two
aircraft engines, and a portfolio of rotable components -- 2,054
---------------------------------
Net investments $ 92 $ 2,160
=================================
</TABLE>
The Partnership sold its 17% interest in the two trusts that owned three
commercial aircraft, two aircraft engines, and a portfolio of rotable
components during the first quarter of 1999 for proceeds of $3.5 million
and had a gain of $1.6 million.
7. Operating Segments
The Partnership operates or operated primarily in six different segments:
aircraft leasing, railcar leasing, marine container leasing, trailer
leasing, mobile offshore drilling unit (MODU) leasing, and marine vessel
leasing. Each equipment leasing segment engages in short-term and mid-term
operating leases to a variety of customers.
The following tables present a summary of the operating segments (in
thousands of dollars):
<TABLE>
<CAPTION>
Marine Marine
Aircraft Railcar Vessel Container Trailer All
For the quarter Ended March 31, 1999 Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total
------------------------------------ ------- ------- ------- ------- ------- ---- -----
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C>
Lease revenue $ 1,509 $ 1,758 $ 459 $ 37 $ 141 $ -- $ 3,904
Interest income and other 5 -- -- -- -- 63 68
Net gain (loss) on disposition of
Equipment 1 17 -- 2 (7) -- 13
---------------------------------------------------------------------------
Total revenues 1,515 1,775 459 39 134 63 3,985
COSTS AND EXPENSES
Operations support 94 350 258 -- 46 10 758
Depreciation and amortization 1,203 443 214 33 89 15 1,997
Interest expense -- -- -- -- -- 316 316
Management fees 62 121 23 2 10 -- 218
General and administrative expenses 192 66 15 2 25 199 499
Provision for (recovery of) bad (21) 46 -- -- (34) -- (9)
debts
Minority interests -- -- (20) -- -- -- (29)
---------------------------------------------------------------------------
Total costs and expenses 1,530 1,026 490 37 136 540 3,759
---------------------------------------------------------------------------
Equity in net income (loss) of USPEs 1,474 -- -- -- -- -- 1,474
---------------------------------------------------------------------------
Net income (loss) $ 1,459 $ 749 $ (31) $ 2 $ (2) $ (477) $ 1,700
===========================================================================
Total assets as of March 31, 1999 $ 12,484 $ 7,783 $ 5,232 $ 555 $ 2,143 $ 3,169 $ 31,366
===========================================================================
<FN>
- --------------------------
<F1>
1 Includes revenues and costs not identifiable to a particular segment such
as interest expense, certain amortization expenses, certain interest income
and other, operations support and general and administrative expenses.
</FN>
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
7. OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
Marine Marine
Aircraft Railcar Vessel Container Trailer MODU All
For the quarter Ended March 31, 1998 Leasing Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total
------------------------------------ ------- ------- ------- ------- ------- ------- ------ -----
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lease revenue $ 1,612 $ 1,828 $ 485 $ 118 $ 319 $ 405 $ -- $ 4,767
Interest income and other 3 -- -- -- -- -- 56 59
Net gain (loss) on disposition of
Equipment (14) 16 -- 1 (13) -- -- (10)
------------------------------------------------------------------------------------
Total revenues 1,601 1,844 485 119 306 405 56 4,816
Costs and Expenses
Operations support 55 516 344 2 54 10 15 996
Depreciation and amortization 1,361 467 257 96 141 315 15 2,652
Interest expense -- -- -- -- -- -- 529 529
Management fees 69 127 24 6 20 20 -- 266
General and administrative expenses 11 66 45 2 52 -- 126 302
Provision for (recovery of) bad 125 3 -- (11) (1) -- 11 127
debts
Minority interest -- -- (63) -- -- -- -- (63)
------------------------------------------------------------------------------------
Total costs and expenses 1,621 1,179 607 95 266 345 696 4,809
------------------------------------------------------------------------------------
Equity in net income (loss) of USPEs 73 -- -- -- -- -- -- 73
------------------------------------------------------------------------------------
Net income (loss) $ 53 $ 665 $ (122) $ 24 $ 40 $ 60 $ (640) $ 80
====================================================================================
Total assets as of March 31, 1998 $ 19,372 $ 9,589 $ 6,106 $ 1,356 3,247 $ 7,107 $ 4,510 $ 51,287
====================================================================================
<FN>
- --------------------------
<F1>
1 Includes revenues and costs not identifiable to a particular segment such
as interest expense, certain amortization expenses, certain interest income
and other, operations support and general and administrative expenses.
</FN>
</TABLE>
8. NOTE PAYABLE
The Partnership had a note outstanding with a face amount of $15.0 million
as of March 31, 1999.
During the first three months of 1999, the Partnership paid down $3.6
million of the outstanding note balance from the proceeds of asset sales.
9. NET INCOME PER WEIGHTED-AVERAGE PARTNERSHIP UNIT
Net income per weighted-average Partnership unit was computed by dividing
net income attributable to limited partners by the weighted-average number
of Partnership units deemed outstanding during the period. The
weighted-average number of Partnership units deemed outstanding during the
three months ended March 31, 1999 and 1998 was 9,871,073.
10. CONTINGENCIES
The Partnership, together with affiliates, has initiated litigation in
various official forums in India against a defaulting Indian airline lessee
to repossess Partnership property and to recover damages for failure to pay
rent and failure to maintain such property in accordance with relevant
lease contracts. The Partnership has repossessed all of its property
previously leased to such airline, and the airline has ceased operations.
In response to the Partnership's collection efforts, the airline filed
counter-claims against the Partnership in excess of the Partnership's
claims against the airline. The General Partner believes that the airline's
counterclaims are completely without merit, and the General Partner will
vigorously defend against such counterclaims.
The Partnership is involved as plaintiff or defendant in various other
legal actions incident to its business. Management does not believe that
any of these actions will be material to the financial condition of the
Partnership.
<PAGE>
PLM EQUIPMENT GROWTH FUND III
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
11. RESTATEMENT
The financial statements have been restated to reflect the consolidation of
the Partnership's majority interests in greater than 50% owned USPE's
previously reported under the equity method of accounting for the three
months ended March 31, 1999 and 1998.
As a result of the consolidation, total assets, total liabilities, and
minority interests changed as of March 31, 1999 and December 31, 1998 as
follows:
1999 1998
As reported Amended As reported Amended
--------------------------- ------------------------
Total assets $28,931 $31,366 $33,068 $35,512
Total liabilities 17,227 17,466 20,986 21,219
Minority interests -- 2,196 -- 2,211
Additionally, as a result of the consolidation, total revenues, total
expenses, and equity in net income of USPEs changed for the three months
ended March 31, 1999 and 1998 as follows:
1999 1998
As reported Amended As reported Amended
--------------------------- ------------------------
Total revenues $ 3,526 $ 3,985 $ 4,331 $ 4,816
Total expenses 3,273 3,759 4,246 4,809
Equity in net
income (loss) of 1,447 1,474 (5) 73
USPEs
Net income $ 1,700 $ 1,700 $ 80 $ 80
The consolidation of the Partnership's majority interests in USPE's did not
change partners' capital or net income (loss) as of and for the three
months ended March 31, 1999 and 1998.
(this space intentionally left blank)
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(I) RESULTS OF OPERATIONS
COMPARISON OF PLM EQUIPMENT GROWTH FUND III'S (THE PARTNERSHIP'S) OPERATING
RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating and asset-specific insurance expenses) on owned equipment
decreased during the three months ended March 31, 1999 when compared to the same
period of 1998. Gains or losses from the sale of equipment, interest and other
income, and certain expenses such as depreciation and amortization and general
and administrative expenses relating to the operating segments (see Note 7 to
the financial statements), are not included in the owned equipment operation
discussion because these expenses are indirect in nature, not a result of
operations but the result of owning a portfolio of equipment. The following
table presents lease revenues less direct expenses by segment (in thousands of
dollars):
For the Three Months
Ended March 31,
1999 1998
------------------------------------
Aircraft $ 1,415 $ 1,557
Railcars 1,408 1,312
Marine vessel 201 141
Trailers 95 265
Marine containers 37 116
Mobile offshore drilling unit -- 395
Aircraft: Aircraft lease revenues and direct expenses were $1.5 million and $0.1
million, respectively, for the quarter ended March 31, 1999, compared to $1.6
million and $0.1 million, respectively, during the same period of 1998. Lease
revenues decreased $0.4 million during the three months ended March 31, 1999
when compared to the same period in 1998 due to one aircraft being offlease
since the third quarter of 1998. The decrease in lease revenue was partially
offset by the incremental lease revenue of $0.3 million from an aircraft that
was transferred into the Partnership's owned equipment portfolio from a trust
during the second quarter of 1998.
Railcars: Railcars lease revenues and direct expenses were $1.8 million and $0.4
million, respectively, for the quarter ended March 31, 1999, compared to $1.8
million and $0.5 million, respectively, during the same period of 1998. The
decrease in direct expenses resulted from running repairs required on certain
railcars in the fleet during the first quarter of 1998, which were not needed
during the same period of 1999.
Marine vessel: Marine vessel lease revenues and direct expenses were $0.5
million and $0.3 million, respectively, for the quarter ended March 31, 1999,
compared to $0.5 million and $0.3 million, respectively, for the same period of
1998.
Trailers: Trailer lease revenues and direct expenses were $0.1 million and
$46,000, respectively, for the quarter ended March 31, 1999, compared to $0.3
million and $0.1 million, respectively, during the same period of 1998. The
number of trailers owned by the Partnership has been declining due to sales and
dispositions. The result of this declining fleet is a decrease in trailer
contribution.
Marine containers: Marine container lease revenues and direct expenses were
$37,000 and $1,000, respectively, for the quarter ended March 31, 1999, compared
to $0.1 million and $2,000, respectively, during the same period of 1998. The
number of marine containers owned by the Partnership has been declining due to
sales and dispositions. The result of this declining fleet and a decrease in
utilization has been a decrease in marine container contribution.
Mobile offshore drilling unit: Mobile offshore drilling unit lease revenues and
direct expenses were zero for the quarter ended March 31, 1999, compared to $0.4
million and $10,000, respectively, for the quarter ended March 31, 1998. The
Partnership sold its mobile offshore drilling unit in June of 1998.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $3.0 million for the quarter ended March 31, 1999
decreased from $3.8 million for the same period of 1998. Significant variances
are explained as follows:
(i) A decrease of $0.7 million in depreciation and amortization expenses
from 1998 levels reflects the sale or disposition of certain
Partnership assets during 1999 and 1998 and the Partnership's use of
the double-declining balance method of depreciation which results in
greater depreciation in the first years an asset is owned.
(ii)A decrease of $0.2 million in interest expense was due to a lower
average debt outstanding during the three months ended March 31, 1999,
compared to the same period in 1998.
(iii) A decrease of $0.1 million in bad debt from 1998 due to the
collection of $40,000 from past due receivables that had previously
been reserved for as a bad debt and the General Partner's evaluation of
the collectability of receivables due from certain lessees.
(iv)An increase of $0.2 million in general and administrative expenses was
primarily due to increases in repositioning and inspection costs to
prepare an aircraft for re-lease.
(C) Net Gain (loss) on Disposition of Owned Equipment
The net gain on the disposition of owned equipment for the first quarter of 1999
was $13,000, resulting from the disposition of marine containers, railcars, and
trailers, with an aggregate net book value of $0.1 million, for aggregate
proceeds of $0.1 million. The net loss on the disposition of owned equipment for
the first quarter of 1998 was $10,000, which resulted from the disposition of
marine containers, trailers, and a railcar, with an aggregate net book value of
$0.3 million, for aggregate proceeds of $0.3 million.
(D) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
(USPEs)
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
For the Three Months
Ended March 31,
1999 1998
---------------------------------
Aircraft, aircraft engines, and rotables $ 1,474 $ 73
=================================
Equity in net income of USPEs $ 1,474 $ 73
=================================
Aircraft, aircraft engines, and rotables: As of March 31, 1998, the Partnership
had an interest in two trusts that owned three commercial aircraft, two aircraft
engines, and a portfolio of aircraft rotables. The Partnership sold these two
trusts during the first quarter of 1999. As of March 31, 1998, the Partnership
had an interest in a trust that owned four commercial aircraft. The aircraft in
this trust was transferred out of the trust into the Partnership's owned
equipment portfolio in the second quarter of 1998. The Partnership's share of
aircraft revenues and expenses was $1.6 million and $0.1 million, respectively,
for the quarter ended March 31, 1999, compared to $0.5 million and $0.4 million,
respectively, during the same period of 1998. The $1.6 million of aircraft
revenues was the gain from the sale of the equipment in the two trusts during
the first quarter of 1999. No lease revenues were earned during the first
quarter of 1999 due to the sale of the equipment in the two trusts and an
aircraft that was transferred out of a trust into the Partnership's owned
equipment portfolio. Aircraft expenses decreased as a result of the sales and
the transfer.
(E) Net Income
As a result of the foregoing, the Partnership had a net income of $1.7 million
in the first quarter of 1999 compared to net income of $0.1 million in the first
quarter of 1998. The Partnership's ability to operate and liquidate assets,
secure leases, and re-lease those assets whose leases expire is subject to many
factors. Therefore, the Partnership's performance in the three months ended
March 31, 1999 is not necessarily indicative of future periods. In the first
quarter of 1999, the Partnership distributed $2.0 million to the limited
partners, or $0.20 per weighted-average depositary unit.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the three months ended March 31, 1999, the Partnership generated operating
cash of $1.3 million (net cash provided by operating activities, plus
non-liquidating distributions from USPEs) to meet its operating obligations and
to make distributions (total for three months ended March 31, 1999 of
approximately $2.1 million) to the partners but also used undistributed
available cash from prior periods of approximately $0.8 million.
During the three months ended March 31, 1999, the Partnership sold owned
equipment and investments in USPEs and received aggregate proceeds of $3.6
million.
During the first three months of 1999, the Partnership paid down $3.6 million of
the outstanding note balance from the proceeds of asset sales.
PLM Financial Services, Inc. (FSI or the General Partner) has not planned any
expenditure, nor is it aware of any contingencies that would cause the
Partnership to require any additional capital to that mentioned above.
The Partnership is in its passive liquidation phase. As a result, the size of
the Partnership's remaining equipment portfolio and, in turn, the amount of net
cash flows from operations will continue to become progressively smaller as
assets are sold. Although distribution levels may be reduced, significant asset
sales may result in potential special distributions to the partners.
(III) EFFECTS OF YEAR 2000
It is possible that the General Partner's currently installed computer systems,
software products, and other business systems, or the Partnership's vendors,
service providers, and customers, working either alone or in conjunction with
other software or systems, may not accept input of, store, manipulate, and
output dates on or after January 1, 2000 without error or interruption (a
problem commonly known as the "Year 2000" problem). Since the Partnership relies
substantially on the General Partner's software systems, applications, and
control devices in operating and monitoring significant aspects of its business,
any Year 2000 problem suffered by the General Partner could have a material
adverse effect on the Partnership's business, financial condition, and results
of operations.
The General Partner has established a special Year 2000 oversight committee to
review the impact of Year 2000 issues on its software products and other
business systems in order to determine whether such systems will retain
functionality after December 31, 1999. The General Partner (a) is currently
integrating Year 2000-compliant programming code into its existing internally
customized and internally developed transaction processing software systems and
(b) the General Partner's accounting and asset management software systems have
either already been made Year 2000-compliant or Year 2000-compliant upgrades of
such systems are planned to be implemented by the General Partner before the end
of fiscal 1999. Although the General Partner believes that its Year 2000
compliance program can be completed by the beginning of 1999, there can be no
assurance that the compliance program will be completed by that date. To date,
the costs incurred and allocated to the Partnership to become Year 2000
compliant have not been material. Also, the General Partner believes the future
cost allocable to the Partnership to become Year 2000 compliant will not be
material.
It is possible that certain of the Partnership's equipment lease portfolio may
not be Year 2000 compliant. The General Partner is currently contacting
equipment manufacturers of the Partnership's leased equipment portfolio to
assure Year 2000 compliance or to develop remediation strategies. The General
Partner does not expect that non-Year 2000 compliance of its leased equipment
portfolio will have an adverse material impact on its financial statements.
Some risks associated with the Year 2000 problem are beyond the ability of the
General Partner or Partnership to control, including the extent to which third
parties can address the Year 2000 problem. The General Partner is communicating
with vendors, services providers, and customers in order to assess the Year 2000
compliance readiness of such parties and the extent to which the Partnership is
vulnerable to any third-party Year 2000 issues. There can be no assurance that
the software systems of such parties will be converted or made Year 2000
compliant in a timely manner. Any failure by the General Partner or such other
parties to make their respective systems Year 2000 compliant could have a
material adverse effect on the business, financial position, and results of
operations from the Partnership. The General Partner will make an ongoing effort
to recognize and evaluate potential exposure relating to third-party Year 2000
non-compliance, and will develop a contingency plan if the General Partner
determines that third-party non-compliance will have a material adverse effect
on the Partnership's business, financial position, or results of operation.
The General Partner is currently developing a contingency plan to address the
possible failure of any systems due to the Year 2000 problems. The General
Partner anticipates these plans will be completed by September 30, 1999.
(IV) ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133), which
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. This statement is effective for all
quarters of fiscal years beginning after June 15, 1999. As of March 31, 1999,
the General Partner is reviewing the effect this standard will have on the
Partnership's financial statements.
(V) OUTLOOK FOR THE FUTURE
The Partnership is its passive liquidation phase. The General Partner is seeking
to selectively re-lease or sell assets as the existing leases expire. Sale
decisions will cause the operating performance of the Partnership to decline
over the remainder of its life. The General Partner anticipates that the
liquidation of Partnership assets will be completed by the scheduled termination
of the Partnership at the end of the year 2000.
Several factors may affect the Partnership's operating performance in 1999 and
beyond, including changes in the markets for the Partnership's equipment and
changes in the regulatory environment in which that equipment operates.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
and government or other regulations. The unpredictability of some of these
factors, or of their occurrence, makes it difficult for the General Partner to
clearly define trends or influences that may impact the performance of the
Partnership's equipment. The General Partner continually monitors both the
equipment markets and the performance of the Partnership's equipment in these
markets. The General Partner may make an evaluation to reduce the Partnership's
exposure to equipment markets in which it determines that it cannot operate
equipment and achieve acceptable rates of return.
The Partnership intends to use cash flow from operations and proceeds from
disposition of equipment to satisfy its operating requirements, pay loan
principal and interest on debt, and pay cash distributions to the partners.
(VI) FORWARD-LOOKING INFORMATION
Except for the historical information contained herein, in this Form 10-Q
contains forward-looking statements that involve risks and uncertainties, such
as statements of the Partnership's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-Q should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-Q. The Partnership's actual results could differ materially from
those discussed here.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposures are that of interest rate and
currency devaluation risk. The Partnership's note payable is a variable rate
debt. The Partnership estimates a one percent increase or decrease in the
Partnership's variable rate debt would result in an increase or decrease,
respectively, in interest expense of $0.1 million in the remaining three
quarters of 1999, and $25,000 in 2000. The Partnership estimates a two percent
increase or decrease in the Partnership's variable rate debt would result in an
increase or decrease, respectively, in interest expense of $0.2 million in the
remaining three quarters of 1999 and $0.1 million in 2000.
During the first quarter of 1999, 75% of the Partnership's total lease revenues
from wholly-and partially-owned equipment came from non-United States domiciled
lessees. Most of the Partnership's leases require payment in United States
(U.S.) currency. If these lessees currency devalues against the U.S. dollar, the
lessees could potentially encounter difficulty in making the U.S. dollar
denominated lease payments.
(this space intentionally left blank)
<PAGE>
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
(this space intentionally left blank)
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLM EQUIPMENT GROWTH FUND III
By: PLM Financial Services, Inc.
General Partner
Date: January 11, 2000 By: /s/ Richard K Brock
-----------------------
Richard K Brock
Vice President and
Corporate Controller
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
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0
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